Letter From Shanghai No 758 - A Meeting And A New Trade Agenda

Overnight Wall Street closed lower as rising Treasury yields forced investors to reconsider past assumptions. The yield on the 10-year Treasury lifted to a 3-months high of 1.5%, and the 5-year rate rose above 1% for the first time since February 2020. Overall, the damage was not serious, and investor message boards this morning seem to have a "so what" bravado. But time is not their friend, this is not a summertime sharp dip then a quick recovery to higher numbers, we are in the autumn of monetary easing policy.

However, long-term readers know that nothing happens in China without a reason. So I, among many, was very interested at the weekend to see a well-known Chinese national return to China following her release from house arrest in Canada. China watchers may ask is it possible to draw a line from there to recent remarks by Gina Raimondo, the US Commerce Secretary, concerning China. "There's no point in talking about decoupling," "As the president has said, we have no interest in a cold war with China. It's too big of an economy — we want access to their economy, they want access to our economy." The FT states Raimondo pledged to help US companies gain access to China's markets and said she sought to travel to China once the coronavirus pandemic eases.

It would seem we may see a shift in the legacy Trumpian policy which emphasized tariffs on those incoming products that were thought of as damaging US domestic industry towards a policy that collaborates with the Europeans and others to limit the export of sensitive technologies. The ever-practical Raimondo remarked, "Unilateral export controls are not effective, because if we tell American companies 'You're not allowed to sell such-and-such equipment to such-and-such Chinese company,' but they get the same thing from Europe or a European vendor, well then all we're doing is hurting American companies and depriving them of that revenue."

If we look down the calendar, we see the G20 summit is timetabled to meet in Rome on October 30 and 31. The transcript of the Sept 9th Biden-Xi phone call does not indicate Xi will travel to Rome, but the ground beneath our feet is changing. Such a meeting would have to be choreographed with the precision of classical ballet, but by then, anything less than a meeting between the two men would seem to be a lost opportunity.

You and I can agree, the differences between China and the US cannot be resolved during a short conversation, but, such meetings offer the opportunity for a de-escalation in attitude, creating an improved atmosphere and a positive agenda. In my Letter number 747, I made the following observation. "If one were to be critical of the recent changes in Chinese policy, it would be to say that the policy changes were implemented before any comprehensive communication of why the policy changes were necessary. In the absence of any communication, the media, particularly the US-based news channels, were pointedly scathing. But China is a place where lessons are quickly learnt. Going forward, one should not be surprised to see senior Beijing policymakers make themselves available to explain China's change of direction and provide assurances that Beijing continues to support the private sector."

The Huawei roadblock has been removed, the two men can meet, and by the end of October, they may need to.

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Have a good day

John